Will This Decision Force Franchises to Reconsider Their Business Models?

On Thursday, the National Labor Relations Board refined its standard for determining joint-employer status. Now, a franchisor can be considered an employer if it influences or controls the "essential terms and conditions of employment," not only directly but also indirectly.

That means franchisors, who have long skirted issues of minimum wage and employee treatment by claiming responsibility rests solely in the hands of franchisees, can now be held legally accountable by workers. Because of this, employees are a big step closer to being able to bargain with franchises collectively on issues of pay and alleged mistreatment, as opposed to dealing with individual franchisees.

The NLRB's new definition springs from a decision involving Browning-Ferris Industries (BFI), in which the board found BFI to be a joint employer with subcontractor Leadpoint, due to both direct and indirect control exerted. However, the decision promises to influence the entire franchise industry, especially big names in fast-food such as McDonald's.

"Today’s NLRB decision is a seismic shift in the Board’s employer definition and, without any Congressional or court action could significantly alter the face of American business as we know it" International Franchise Association (IFA) President Steve Caldeira said in a statement. "If allowed to go into effect, the impact of this new joint-employer rule would be sweeping and widespread, create havoc for the franchise industry and, ultimately, would inflict serious damage to our nation’s economy."

The IFA is currently working to encourage Congress to support legislation that will codify the long-held, narrower definition of what constitutes a joint employer. Additionally, BFI may appeal the decision to either the 9th Circuit of the D.C. Circuit Court.

If BFI and the IFA does not succeed in convincing Congress to pass legislation that will oppose the NLRB's decision, franchises are going to have to examine their business model and see where they fit under the expanded definition. Many companies will either have to take responsibility to ensure employees' well-being or, alternatively, diminish direct and indirect control over franchisees, such as in the forms of hiring practices and corporate instruction related to employees.

McDonald's is already in the midst of an attempt to escape the label of joint employer. Last July, the NLRB deemed McDonald's a joint employer and a responsible party in labor cases, a decision the company is still fighting, with a final decision expected in 2016.

However, not every franchise necessarily needs to worry. In April, the NLRB concluded that healthy fast-casual chain Freshii is not a joint employer, even when considering both the direct and indirect power of the franchisor in terms of hiring, firing and discipline.